Vat question

1022 views 4 replies

Aditya Murthy

CA-Final Grp 1 cleared

27 Points Joined August 2011

In case if a company's sale procedure is as follows:-

~Company sells to Distributor THEN

~Distributor sells to Retailer

Here if the Company is selling 1000 units of goods worth Rs1000 to the distributor and the VAT applied @ 4% ie Rs40, then if the distributor sells it to the retailer at a trade discount ie 10%.

From distributor's point of view:-

Sale Price{eg}	Rs 1500
After Discount price	Rs 1350
VAT applied @ 4%	Rs 54
Final Invoice Price	Rs 1296

From Company's point of view:-

Sale price	Rs 1000
VAT applied @ 4%	Rs 40
Final Invoice Price	Rs 960

Here the Company gives commission to the distributor on sales made by him.

IF I am an Internal auditor of the Company and I am given the claim of the distributor who is claiming commision from the Company.

MY QUESTION-

1) So in this above case isn't the distributor claiming excess VAT from the company?

{ It is because I feel the distributor is selling at a discount to the retailer hence the distributor must claim less VAT from the Company

Ie he must be claiming only Rs36 ([1000-10%discount] * 4%) and not Rs40 }

Replies (4)

MJ Krishnamurthy

ACCT(Retd)

7197 Points Joined July 2010

Mr Adityamurhty,

Here the company sells to the distributor at Rs 1000/- inclusive of VAT and allows him to sell at Rs 1350/- after discount,inclusive of VAT. He collects Rs150 VAT,claims an input of Rs40/-(as per your example) and pays the balance of Rs110/- VAT to the govt. There should be no problem in this arrangement......MJK

Harshal Fifadra

Chartered Accountant

1489 Points Joined August 2011

Agree with MJK

What is VAT ? Value added tax i.e tax on the value addition made by the dealer . Here the value addition is in the form of profit of the company , distributor

Also the discount is given by the distributor to the retailer .Hence there is no point in reduction of the ITC by 10%. Whatever you purchase is eligible fro set off subject to certain rules as provided in the individual state VAT laws

oK .....

aslami

asst auditor

22 Points Joined August 2012

can a wholsale medicine dealer in karnataka has a option of charging VAT either on actual invoice vale or on MRP

MJ Krishnamurthy

ACCT(Retd)

7197 Points Joined July 2010

Mr Aslami,

Charging VAT on the quoted value in the invoice is the normal practice..When VAT was introduced Medicine dealers raised an issue that they are not permitted to sell above MRP as per Drug Control Act etc. On this point it was permitted to include VAT in MRP(mentioning in the invoice that the prices are inclusive of VAT) as a special case for deviating from the concerned rule. Now all dealers are permitted to include VAT in the total value charged in an invoice. Of course, charging VAT on MRP when it is declared by the manufacturer that the MRP is inclusive of all taxes becomes an offence as per consumer's rights law....MJK